MBS and Treasuries both moved to test technical boundaries this morning and are now breaking out this afternoon (aka "testing" for confirmation). That said, confirmation would be slightly less conclusive today as volume will struggle to make it to HALF of Friday's.

For MBS, the technical barrier at 104-00 has since given way to 104-02. 10yr yields have a pivot point between 2.836 and 2.82. They're currently right in line with the latter.

One contributing factor has emerged in the form of asset allocation trading, which is just a fancy way to say money is flowing out of stocks and into bonds (or vice versa depending on the day). Considering that S&P shed more than 10 points in the hour from 12:22 to 1:22pm, the portfolio rebalancing is definitely favoring bonds. Think of this as an incremental boost as opposed to the most direct driver.

The net effect is a 9/32nds gain in Fannie 4.0s, with almost all of it arriving AFTER the first round of rate sheets. This has made for quite a few positive reprices so far today. The possibility remains on the table.

Category: MBS, UPDATE

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1/13/14

Slow Start; Slightly Positive; No Data

Levels of activity have been typical for a Monday morning with an empty economic calendar. The slowness was compounded by "Coming of Age" day in Japan, which is apparently a national holiday that includes bond market closures. When Japan is closed, Treasuries don't trade overnight until the European session.

As for Europe, core debt (like German Bunds--generally the most highly correlated to US Treasuries and MBS) was in "catch up" mode following Friday's big move in the US. Treasuries held flat between 2.85 and 2.86 while Bunds rallied about 3bps.

The domestic session has been mostly uneventful and slightly positive so far. MBS are in a 3 tick range between 103-24 and 103-27, currently at the highs of the day. 10yr yields are down just over 1bp at 2.8487, also the best levels of the day/week/month.

There is no significant scheduled data on the calendar, unless you count the Treasury Budget at 2pm (and you shouldn't).

MBS and Treasuries both moved to test technical boundaries this morning and are now breaking out this afternoon (aka "testing" for confirmation). That said, confirmation would be slightly less conclusive today as volume will struggle to make it to HALF of Friday's.

For MBS, the technical barrier at 104-00 has since given way to 104-02. 10yr yields have a pivot point between 2.836 and 2.82. They're currently right in line with the latter.

One contributing factor has emerged in the form of asset allocation trading, which is just a fancy way to say money is flowing out of stocks and into bonds (or vice versa depending on the day). Considering that S&P shed more than 10 points in the hour from 12:22 to 1:22pm, the portfolio rebalancing is definitely favoring bonds. Think of this as an incremental boost as opposed to the most direct driver.

The net effect is a 9/32nds gain in Fannie 4.0s, with almost all of it arriving AFTER the first round of rate sheets. This has made for quite a few positive reprices so far today. The possibility remains on the table.

Levels of activity have been typical for a Monday morning with an empty economic calendar. The slowness was compounded by "Coming of Age" day in Japan, which is apparently a national holiday that includes bond market closures. When Japan is closed, Treasuries don't trade overnight until the European session.

As for Europe, core debt (like German Bunds--generally the most highly correlated to US Treasuries and MBS) was in "catch up" mode following Friday's big move in the US. Treasuries held flat between 2.85 and 2.86 while Bunds rallied about 3bps.

The domestic session has been mostly uneventful and slightly positive so far. MBS are in a 3 tick range between 103-24 and 103-27, currently at the highs of the day. 10yr yields are down just over 1bp at 2.8487, also the best levels of the day/week/month.

There is no significant scheduled data on the calendar, unless you count the Treasury Budget at 2pm (and you shouldn't).

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